Stop-Loss hunting; Scam or regular move in the market?
I wrote this article a year ago, but I didn’t explain that some of the ‘brokers’ use this metod to scam the clients. Yes, they are. I will try to explain shortly, what is Stop-Loss hunting and why it happens in the regular market and how the unserious brokers scam the clients with this metod. I am aware that most of the small retail traders think that, this is usual manipulation in the market, but it’s not. They are just partially right.
Why? Because, there is so many forex brokers without proper regulation who are trading over the ‘B book’ and who use this method to manipulate with clients ‘inside the house’. What that means? It means that you’re broker doesn’t place your orders directly in the market, but it trades inside the house with other clients and manipulate with you. Why and what is the purpose? They want you to lose and to trade constantly, to make a new deposits, because they make money from you’re turnover of course. They are looking at you as a short term client. Sure, you can discover that easy. How? When something like this in the picture happens to you, take a look at the other broker platforms and compare that move with you’re platform/broker. If there is a huge difference and this move didn’t happen for real, you’re scamed! That’s why I always write that, you have to choose a serious and respectable broker in the forex market!
In the regular market, Stop-Loss hunting is not a scam because that move is caused by the big market players, searching for liquidity!
I hope that you are all aware what is technical ‘Support Level’ and how it occurs. Support level is a group of buy orders and as orders are larger, technical support is stronger. But, sometimes comes to the situations when those orders are not enough for the opposite side, for the ‘big players’ who are seeking to fill up their huge positions. And, whey they see the opportunitie to pushed price through a major support level, they do this knowing there is a good chance that stop loss/buy stop orders will be there, as some traders protect their trades under the support, while others speculate on higher prices, both trade accordingly. If there are maybe $100 million worth of orders at a given level, the large traders will be keen to drive the underlying price down to set off the stop orders and subsequently get a fill for their selling orders. But, as they don’t know how much stop loss/buy orders is under that level, sometimes this ‘Stop-Loss hunting’ or ‘Fail brake’ could be 30 pips, and sometimes 60 pips or more.
What can you do to avoid situations like this in the regulated market? There is a lot of situations when you can predict a moves like this and if you read my analysis, you can see that sometimes I am warning for possiblity of the ‘Stop-Loss Hunting’. Most often, these situations occures at strong technical levels and during the strong ‘obvious’ one way trend, where the big players can satisfy their appetites. But, experience what you get from the situations like this will help you to understand the market moves better and to predict big market players moves as well. And yes, the big players are chasing your stops sometimes, but that’s apsolutely normal if you trade with respectable borker. Watch out!